The Mercantile Building Society has introduced the two-year fixed rate mortgage.
Available for loans of up to 80 per cent of valuation, the interest rate is fixed at 5.49 per cent until August 1, 2003. After the fixed rate period the mortgage will carry the Mercantiles standard variable rate.
There is a completion fee of £195 and an early redemption penalty of 4 per cent of the advance in the first year of the loan and 3 per cent in the second year. It also comes with free unemployment insurance for the first year of the loan.
Looking at figures from the Council of Mortgage Lenders on July 31, 2001, the average rate of interest of fixed rate mortgages has been coming down over the past year. In the second quarter of 2000 the average rate was 6.41 per cent. In the second quarter of 2001 the average was 5.94 per cent. The Mercantile mortgage is therefore lower than the current national average.
Th timing of this mortgage could be good. Interest rates may start to rise again and the advantage of fixing means borrowers can avoid an upturn in rates, perhaps until they stabilise again. The mortgage will appeal to people who want this reassurance.
According to Moneyfacts the most competitive two-year fixed rate mortgage is from Yorkshire Building Society. This has a lower fixed rate of 5.19 per cent, but a lower maximum of 75 per cent of valuation. It has a higher completion fee of £295, but has a more competitive redemption fee of 3 per cent in the first two years of the mortgage. It also has free accident, sickness and unemployment cover for the first six months of the loan.